It’s been six months since the passage of the Tax Cuts and Jobs Act but president Trump is already hinting at a second round of tax cuts – this time aimed directly at the middle class.
Here’s what Trump said in an interview with Fox Business host Maria Bartiromo:
“We’re doing a phase two, we’ll be doing it probably in October, maybe a little sooner than that. And it will be more of a middle class — we did a lot for the middle class — but this will be more aimed at the middle class.”
Trump did not give specifics about the second phase of the tax cuts but he did express his willingness to approve an additional tax rate reduction on the corporate tax rate from 21% to 20%. Back in December, Republicans lowered the corporate tax rate from 35% to 21%.
Besides the drop in the corporate tax rate, Trump failed to detail exactly what a middle class focused tax cut would look like. Here are just some ways the second phase of tax reform might impact the middle class:
- Another payroll tax holiday – Back in 2011 Congress introduced a payroll tax holiday which reduced the employee share of the Social Security payroll tax from 6.2 percent to 4.2 percent. Since most working class families pay social security payroll tax, another temporary tax holiday would give working class families a needed pay raise.
- Make permanent the tax breaks on families and individuals – The most recent tax reform package signed into law is filled with sunsets and expirations on key tax cuts aimed at the middle class. By 2025, working class Americans will be hit with a massive tax increase unless congress extends these benefits. Eliminating that uncertainty now would be a huge relief for middle class families.
- Expand deductibility of student loan interest – The deductibility of student loan interest phases out between $65,000 and $80,000 and is completely eliminated for individuals making anything above $80,000 a year. Increasing these limits could give recent graduates a well needed tax break they could use to start their own middle class families.
- Make the child tax credit fully refundable – The enhanced child tax credit gives a bigger boost to working class families in the form of a tax credit. However, for those families whose tax liability falls to zero the child tax credit is only partially refundable. Making the child tax credit fully refundable would be a massive benefit for lower to middle class families.
Of course these are only a few possible options on the table when it comes to a second phase of tax cuts. However, with the $1.5 trillion tax-cut passed into law last December, it’s unclear how the President or Congress can manage to afford another tax break.
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Do you think these reforms will impact the foreign tax credit position of US companies? I work with a number of very large US retailers who resist WHT deductions on royalties in the countries they operate in on the grounds that they are expecting reforms in the US tax law which will hurt their tax credit position. Is this something they should actually worry about?